The UK Higher Education sector has a well-established international reputation for its excellent academic education and world-leading research – it is the second most popular study destination in the world. However, of late, UK universities appear to be under strain, and the role of overseas students is directly related to this. A gradual or rapid reduction in international student numbers in the future would have a significant impact on the sector, with up to 80% of providers sliding into deficit. This is one of the findings from a report titled ‘UK Higher Education Financial Sustainability Report January 2024’.
The report states – Our analysis shows that, across the sector, providers would be materially impacted by a gradual or sudden drop in international student numbers in the coming years – with up to 80% of providers falling into deficit.
Over the past decade, the sector has been facing increasing financial pressures that threaten providers’ ability to maintain the quality of their provision, and this may even bring the future of some providers into question.
The report adds – Perhaps not surprising that we foresee a challenging financial outlook for the sector given a diminishing unit of resource for domestic students and increasing inflationary pressures on Higher Education provider cost bases. In England
Across the UK, research activity by Higher Education providers often operates at a net loss with funding further eroded by inflationary pressures. Most providers are particularly exposed to shocks in international student demand.
The UK is the second most popular destination for international students (hosting 700000 international students worldwide) given a strong international brand (four out of the World’s Top Ten universities9), high-quality research and attractive graduate routes.
China and India
Universities are feeling significant pressure given constraints on their ability to generate income, increasing investment requirements and an escalating cost base. This is placing strain on margins and driving greater reliance
The UK Higher Education sector is facing constraints on income generation. In tuition fees and teaching grants, funding per student has been falling across UK nations over the last decade. In England, domestic fees have been capped since 2012 (with only a minor uplift of £250 in 2017 for providers with a Teaching Excellence Framework award) and are now worth only £5,990 in 2012 prices.
Funding per student is at its lowest level in over 25 years and, without any additional investment, is expected to fall to £5,590 in England by 2025/26 (in 2012 prices)11. In Scotland, it is estimated that per-student funding has already been cut by 39% per student in real terms since 2014/1512.
All segments in the report are assuming increased reliance on international fee income. International fee income will account for between 33-66% of all course fee income by 2026/27 (compared to a range of 24-64% in 2021/22).
Despite its strong international brand and academic excellence, the UK Higher Education sector and its institutions are facing significant financial challenges that threaten to impact the quality of provision and student outcomes. In the longer term, this may impact the UK’s international standing and its ability to attract and retain students and therefore undermine the considerable economic benefits the sector brings to the UK.
Constraints on income generation, alongside cost pressures, have driven providers to increasingly cross-subsidize domestic student teaching and research activities with higher levels of non-fee-capped international students.
Capitalizing on strong international student growth in recent years, this strategy has led to an over-reliance in some cases and leaves some providers exposed to international demand or geopolitical shocks that they cannot control.
